Cross-Cultural Issues of International Joint
Ventures: A Viewpoint from Israel
Ferenc Farkas
Faculty of Business and Economics, University of Pécs
e-mail: [email protected]
Giora Avny
Derby University Israel
Ph.D candidate at University of Pécs
e-mail: [email protected]
Abstract: The present study focuses on studying the perception of joint ventures, which
have prevailed in recent years due to globalization, and in an effort to shed some light on
the contribution of organizational and national culture to the performance of international
joint ventures in which Israeli firms take part. Organizational culture is a collectively
internalized deeply embedded set of beliefs, expectations and assumptions that influence
and guide thinking and behavior among joint venture members. Contradicting findings
continue to be confusing regarding the nature of the relationship between partners' cultural
differences and joint venture performance. The goal of the present research is to resolve
this indeterminacy by theoretically advancing and empirically testing a model to explain
the phenomenon. Three major hypotheses were tested in this study in an effort to support
the differing opinions between researchers: (1) Difference in organizational culture is the
reason for performance gaps in joint ventures rather than national culture differences; (2)
The influence of cultural difference on the performance of international joint ventures is
indirect, but highly influenced by the level of trust between its partners; (3) The extent of
acculturation between partners has a positive influence on trust formation between the
partners and as a result, on the joint venture performance.
Data were collected from 66 managers in 63 joint ventures that included Israeli partners
and 23 countries in 16 industries. Relationships proposed in the study were validated using
the methodology of structural equations modeling. The study has found that the
performances of joint ventures, whose basis of operation is in Israel, are influenced by the
organizational culture differences, driven by trust between partners as a mediating
variable.
The extent of acculturation between partners was found to have a positive influence on
trust, which is a major derivate for forming more positive and better joint ventures.
The study has also found that national culture differences have no influence on joint
venture performance. Nevertheless, it is important for future studies to continue and to
compare countries, industrial branches and various combinations of characteristics of
parent companies and joint ventures.
Keywords: organizational culture, organizational performance, international joint venture.
The importance of the present study lies in presenting and analyzing the behavior
of the partners in joint ventures and its influence on the performance of the
business organizations, while presenting the cultural variance between the partners
in the joint ventures as a major factor leading to their failure in the past decade
(Alter and Hage, 1993); Blodgett, 1992; Business Week, 1986; 1989; Geringer
and Herbert, 1991; Geringer and Woodcock, 1989; Harrigan, 1985; Hergert and
Morris, 1988; Parkhe, 1993c; Porter and Fuller, 1986). This study is an attempt to
clarify a phenomenon that continues to grow in its prominence but has not yet
been well researched into (Alter and Hage, 1993; Geringer and Herbert, 1991;
Lane and Beamish, 1990; Madhok, 1995; Mohr and Spekman, 1994; Ring and
Van de Ven, 1994).
The joint venture performance in this study refers to the level of the partners'
satisfaction on three major subjects and five variables and performance criteria
reflecting the performance of the joint venture.
In this framework, the study focused, theoretically and empirically on three
aspects of cultural variance in joint ventures:
1
Variance in national culture vs. variance in organizational culture and its
influence on the performance by joint ventures.
2
The importance of trust in joint ventures and its influence on business
performance.
3
The influence of the acculturation process on the trust between partners and,
as a consequence, on the organization's performance.
Due to the contradictions and disagreements between researchers regarding the
proper way to reduce cultural variance between partners in a joint venture, the first
research question is: Does cultural variance in joint ventures influence the
business organization? If so, what cultural, organizational and national dimensions
have some measure of influence on the organization?
The second research question reflected this issue and dealt with the influence of
trust, as a mediating factor, on the joint venture's performance.
The third question deals with the influence of acculturation and its positive
relation with the organization's performance. Does the acculturation process,
which takes place during joint venture, reflect also the building of trust, and, as a
result, influences business performance?
The Study Model
Theoretically, the study reflects the importance of cultural variance in
international and organizational levels, focusing on mediating variables such as
trust and acculturation by the partners as variables that influence performance
behavior (see research model flow chart in Figure 1).
Figure 1
The Influence of Cultural Differences on the Performance of Cross-Cultural Joint Ventures
The Study Hypotheses
Based on the literature review, the study hypotheses focus on the influence of
cultural differences at the international and organizational level in joint ventures
and their business performance.
The research model suggested here, dealing with the influence of cultural variance
on the performance of joint ventures in Israel, reflects an innovative approach,
especially in the variables that reflect the potential difference in the different
cultures, in an attempt to present a wide basis, as much as possible, for the
decision making process in joint ventures and more effective performance.
The research hypotheses are derived from the research questions and from the
extensive review of literature.
First hypothesis: Cultural-national variance has an adverse influence on the
joint venture's performance.
Second hypothesis: Organizational-cultural difference has an adverse
influence on the joint venture performance.
Third hypothesis: Cultural-organizational difference influences the joint
venture performance more than cultural-national difference.
Fourth hypothesis: The existence of trust among partners in a joint venture
carries considerable and essential weight for better performance.
Fifth hypothesis: National culture differences adversely influence joint venture
performance through partnership trust as a mediating variable.
Six hypothesis: Organizational culture differences adversely influence joint
venture performance through partnership trust as a mediating variable.
Seventh hypothesis: Degree of acculturation between partners positively
influences partnership trust which in turn positively influences joint venture
performance.
Methodology
The Study Design
The study design was based on the compatibility of the methodological
alternatives with the research methods and tools, the study population and sample,
the sample size, sample duration, data infrastructure and variable control.
Data collection method
Quantitative survey data obtained through questionnaires (Shenkar and Zeira,
1992).
The chosen quantitative method was intended to provide explanations, causal at
times, for various phenomena that would predict future behavior between partners
in joint ventures. The quantitative paradigm is suitable to the research and the
questions it aims to answer, due to its suitability to a large sample size, and its
ability to examine the relation between variables by isolating them and controlling
them in an open and stress-free atmosphere.
The study population
The data were collected from 63 Israeli firms which have joint ventures with
foreign firms from 23 countries. These firms are active in 16 varied industries.
The study used a valid sampling method, which was tested by Geringer and
Herbert (1991), according to which information collected from joint ventures
through one partner in Israel will be valid and representative of the entire project
performance.
Based on Geringer and Herbert's (1991) findings, data collection in the present
study was executed through a questionnaire distributed to the sample population
and collected during an interview with one of the Israeli partners in the project.
From three of the 66 joint ventures taking part in the study, two participants were
located, who answered the questionnaire at the level of the project manager and
marketing manager, thus limiting the possibility of potential bias.
Sample size
A recommended sample size was calculated on the basis of desired effect size and
statistical power, a method recommended by Hair, Anderson, Tatham and Black
(1995). I considered a conservative effect size of r=0.3. With a power value of 0.8
and effect size of r=0.3 at a significance level of .05, the appropriate sample size
was calculated as 69 (Hair et al., 1995:11). Since the size of the sample is based
on assumptions about power value and effect size, it can only be used as a guide,
not a norm. The data collected consist of responses from 66 executives from 63
joint ventures, in accordance with the initial target size of 69.
Questionnaire Design and Administration
This section discusses the methods used for designing the questionnaire, pretesting the questionnaire, personal interviewing, operationalization of the
measures, reliability of the measures and construct validity of the measures. The
questionnaire contains extra questions for future research, and their details are not
discussed in this study.
Operational action of the measures
The study questions required data from the variables described in Fig. 1.
Independent variables:
Difference in organizational culture
Difference in national culture
Level of acculturation
Mediating variable:
Partnership trust
Dependent variable:
Joint venture performance
Control of variables in the study
Commitment towards participation was measured on a satisfaction scale wherein
participants were asked to rate the commitment of the partners to joint venture on
a scale of 1 to 5. All ventures where this measure scored less than 3 were omitted
from the study. Partners' affiliation to the same industry was determined based on
the respondents reporting an identical industry for both partners. The project's age
was measured in months from the moment of the first interaction between the
partners. The project's scope was measured by scopes of activity and annual sales
average.
Reliability of the Measures
The reliability of the measurement tools is described as a balance between the
characteristics of the measurement tools, their stability and level and the sample
response (Rosenthal and Rosnow, 1991). The reliability of the measurement tools
in this study was based on the Alpha Cronbach method as detailed in the following
table:
Variable
Joint venture
performance
Measurement scale
Alpha
Cronbach
Object
importance
attainment
Object
fulfillment
attainment
0.89
0.84
0.81
0.92
Satisfaction importance
Satisfaction fulfillment
Acculturation
Acculturation
practice
attitude
in
0.52
0.54
Ideal acculturation attitude
Organizational
culture
Organizational culture
0.68
The partner's organizational
culture
0.74
Table 1
Reliability of the Measures
Differences in National Culture
Reliability coefficients of national culture measures were not computed in this
study since the scores were not measured by this study but were adapted from
Hofstede's (1980) study.
The study findings reflect a clear trend, emphasizing the importance of variables
which favor differences pertaining to organizational culture, trust between the
joint venture partners and the extent of common socialization of the partners over
those pertaining to national culture to account for differences in joint venture
performance.
The empirical findings confirm that:
1
The first study hypothesis, stating that cultural-national variance has an
adverse influence on joint venture performance was supported;
2
The second study hypothesis, stating that organizational-cultural difference
has an adverse influence on the joint venture performance was partially
supported;
3
The third study hypothesis, stating that cultural-organizational difference
influences the joint venture performance more than cultural-national
difference, was supported;
4
The fourth study hypothesis, stating that the existence of trust among partners
in a joint venture carries considerable and essential weight for better
performance, was partially supported;
5
The fifth study hypothesis, stating that national culture differences adversely
influence joint venture performance through partnership trust as a mediating
variable, was not supported.
6
The sixth study hypothesis, stating that organizational culture differences
adversely influence joint venture performance through partnership trust as a
mediating variable, was partially supported.
7
The seventh study hypothesis, stating that the degree of acculturation between
partners positively influences partnership trust, which in turn positively
influences joint venture performance, was supported.
The findings of this study corroborate Harrigan's (1985) observation that
organizational culture differences may be more important to joint venture
performance than national culture differences. The findings also fall in line with
several other studies that found that national culture differences did not have a
significant influence on joint venture performance (Benito and Gripsrud, 1992;
Park and Ungson, 1997). On the other hand, these findings fit the proposition of
other studies that found that national culture differences have a significant
difference (Barkema, Bell and Pennings, 1996; Davidson, 1980; Harrigan, 1985;
Kogut and Singh, 1988; Parkhe, 1993b).
A recently published study (McSweeney, 2002) has criticized the dimensions of
national culture used in Hofstede's studies during the 1980's and especially the
analysis regarding their relation to management perception and firms'
performance. This criticism clearly implies that in order to understand the
influence of national culture on management, we need to know more about the
differences and cultural variety of each firm. Perceptions, interactions and agents
of change in the national culture exert influence that differs from the dimensions
coined by Hofstede two and a half decades ago. Instead of seeking an explanation
for assumed national uniformity from the conceptual lacuna that is the essentialist
notion of national culture, we need to engage with and use theories of action with
can cope with change, power, variety, multiple influences – including the nonnational – and the complexity and situational variability of the individual subject.
The finding that organizational culture differences influence venture performance
more significantly than national culture differences can help interpret some of the
contradiction in previous studies. In IJV's, partners not only belong to different
countries but also to different organizations. This fact is highly significant, since
the changes in the global business environment, and especially the open borders
for business activities, have considerably limited the influence of national cultural
differences on business performance in joint venture, emphasizing the dimensions
and values of organizational culture as change agents and their influence on the
joint venture performance.
In light of these findings, this study testifies to the need to focus on individual
dimensions of cultural differences rather than on macro measures (Kelley and
Worthley, 1981) and ratifies the need to use appropriate culture measures,
depending on the level of analysis (Hofstede, Bond and Luk, 1993).
Though the above explanation is relevant to studies that used nationally as a
culture measure, this explanation is not applicable to studies that used the measure
culture distant index, which is compiled from the dimensions of national culture
alone.
Black and Mendenhall (1991) advance an anticipatory adjustment theory to
explain why some cultural differences have less than expected influence. The
essence of anticipatory adjustment is that individuals through vicarious learning
make anticipatory adjustments to the new culture before they experience the new
culture. This leads to less initial euphoria because of more realistic expectations
and anticipatory behavioral adaptation. Since partners know each other's
nationality in advance, willingness to adapt to each other's national cultures may
lead to anticipatory adjustment. In such a situation, national culture differences do
not cause the expected adverse influence. This argument is supported by the
findings of Shenkar and Zeira (1992). When partners differ in uncertainty
avoidance, there was no adverse impact on the communication.
Another possible explanation is presented by Chen, Chen and Meindl (1998), who
examined the behavior of partners in business activities through the dimension of
individualism vs. collectivism, while putting to the test the prevailing notion that
collectivism is preferred to individualism. They developed a culturally contingent
theory of cooperation to explain how societal normative values condition
cooperation mechanisms and how cooperative behavior is moderated by these
contingencies. In this perspective, individualists and collectivists exhibit
cooperative behavior based on different cultural contingencies. This line of
argument is supportive of a general proposition that mechanisms that facilitate
communication, cooperation, commitment and conflict resolution are culturally
contingent, as found by several other studies.
Therefore, it is inadequate to study the role of national culture differences without
focusing on the individual cultural contingencies in which partners' behaviors are
affected.
Nonetheless, because national culture difference is complex and includes many
dimensions, it is not always possible to identify it as being responsible for the
business failure of the joint venture. Thus, the lack of influence of national
cultural difference on the joint venture performance requires further examination
of the above-mentioned alternatives through future empirical studies.
The findings of the present study, which reflect the importance of organizational
culture difference in the joint venture performance, require future studies on
various related issues. The fact that the study hypotheses, which focused on the
negative influence of organizational culture variables on joint venture
performance, were supported in part or in full, requires detailed understanding and
analysis of the variables.
The models tested in this study also indicate the importance of partnership trust in
understanding the behavioral processes in cross-cultural joint ventures. The study's
findings reconfirm the position of previous studies that underscored the central
role of partnership trust in interorganizational relationships (Anderson and Narus,
1990; Mohr and Speckman, 1994; Parkhe, 1993d; Ring & Van de Ven, 1994;
Zucker, 1986). Further, depending on the stage of the joint venture, different
processes seem to assume prominence in influencing partnership trust and joint
venture performance. By measuring partnership trust in ongoing joint ventures,
this study ratifies the role of acculturation in influencing process based trust
producing mechanisms and correspondingly, partnership trust.
In conclusion, the congruence of a given practice with local cultural values can be
an important contingency to be considered in any decision to transfer across
cultural settings. Careful preliminary assessment of compatibility between local
core values and those underlying joint venture structures and procedures may
prevent costly and sometimes irreversible mistakes of implementing structures and
practices that are not suited to the local environment (Lachman et al., 1994).
The study did not focus on examining other possibilities in which organizational
culture influences joint venture performance, such as the structure of the
partnership (Parkhe, 1993b). The present study is limited to examining the
following areas:
1
International joint ventures in which the country of one of the partners is
Israel.
2
Partnership between two partners instead of many partners.
3
Ventures whose goal is profit, not those who are non-profitable organizations.
Therefore, the study focused on data collection from one of the partners in the
venture (Israel), a limitation that may have biased the data.
Nonetheless, the findings of the present study shed some light on the importance
of culture and its influence on joint venture performance, and especially the role of
trust and socialization between partners. I am hopeful that the present study will
serve as a worthy foundation for future studies.
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